Shoddy Construction? Tax Loopholes Prompt Concerns

Some prominent leaders in the booming Texas construction industry are calling for change because they say there’s a loophole in the employment laws that allow companies to not only employ undocumented immigrants, but also skip out on paying millions of dollars in taxes.

Stan Marek, president and CEO of the Marek Family of Companies, a construction firm in Texas, told Fox News competing construction companies are intentionally misclassifying employees as “subcontractors” instead of full-time staffers.

By doing so, these companies avoid paying payroll taxes, worker's compensation and overtime. It's also a way to prevent them from having to provide to authorities a worker's legal status.

In turn, Marek says a huge number of employers in this "underground economy" are using undocumented immigrant labor without being held accountable.

"As we bid work against contractors who classify their employees as independent subcontractors and don't pay taxes," Marek said. "There is no way we can compete."

New data released from a study conducted by the University of Texas shows the federal government loses more than $1 billion every year in payroll taxes by these companies who pay their employees under the table and off the books.

To bring change, a spokeswoman for the Texas Workforce Commission says the agency is enhancing its audit system to find and track down more of these offenders.

The commission’s board also unanimously voted to submit a legislative proposal to get new laws on the books to crack down on the problem. The details of that proposal are still being ironed out but the agency hopes to take advantage of the current legislative session to usher in change.

Under the current system, if an employer is found to be skirting the law, they’re required to pay back taxes and interest but there is no set financial penalty and they face no criminal charges.

“We can assess fines based on the late payment of those taxes.” said Lisa Givens of the Texas Workforce Commission. “Assessing those taxes as far back as we can determine that they're owed. There are late payment penalties, so we go ahead and ask for those things from the employer."

While a proposal to tighten penalties is in the hands of lawmakers, Givens say progress was already being made.

According to data provided to Fox News by the Workforce Commission, more than $539,000 in back taxes were collected through worker misclassification audits in 2011. However, last year, that number jumped to more than $1.7 million.

“If we don’t change, level the playing field, where we can give our people raises and attract younger people into the trades,” Marek said. “We’re going to wake up down the road and it won’t be too long, we’re going to have a tremendous shortage of good and honest workers in this industry."